Because non-QM loans have performed so well since they were first offered four years ago, Angel Oak and other alternative lenders are expanding the number and types of products. These new products enhance the benefits available to several types of homebuyers. They also enable originators to offer attractive options to their customers. The mortgage marketplace needs these responsible new products to grow and meet the needs of all creditworthy consumers.
Consumer choices were severely limited after the mortgage market collapsed nearly 10 years ago. Prime borrowers have mostly faced a one-size-fits-all environment. The self-employed, retirees, investors and those experiencing a credit event were usually turned down. With the advent of non-QM lending in 2014—spurred by the Consumer Financial Protection Bureau’s (CFPB) ability-to-repay rules—innovators like Angel Oak began to enable more diverse consumers to obtain home loans.
From the beginning, we knew that market growth demanded responsible development of new products. But, we had to walk before we could run. Our first offer was the Non-Prime Program. Although it was nothing like the pre-recession sub-prime loans, the marketplace often confused them. The Non-Prime Program was a tremendous success. Rates and terms were reasonable and defaults low. More importantly, the data we acquired enabled us to expand the product offerings so that qualifying criteria and rates were appropriate for borrowers with differing circumstances.
Angel Oak now offers seven distinct programs. Each one allows borrowers to obtain the non-agency loan that aligns best with their income, equity and credit situation. Our newest product, Platinum, represents a refinement of programs that qualified borrowers based on bank statements and following a credit event. With information from investors on Wall Street and originators in the field, we identified a large group of potential borrowers with credit scores high enough to warrant a new slot on our pricing matrix. These borrowers can now acquire loans with rates just above those for agency loans. Previously, borrowers best served by Platinum would have been placed in either our Portfolio Select or Bank Statement programs with higher rates.
Moving forward, responsible new product development and market growth will be driven by richer performance data and insights gleaned from broadening relations with originators who work with and understand the needs of their customers. As the current $5 billion non-QM mortgage business is just a fraction of a $100 billion-plus potential market, we expect that market maturation will result in more diverse products featuring better terms for consumers.
Tom Hutchens is Senior Vice President of Sales and Marketing at Angel Oak Mortgage Solutions, an Atlanta-based wholesale and correspondent lender leading the non-QM space for four years and licensed in more than 35 states. Tom has been in the real estate lending business for nearly 20 years. He may be reached by phone at (855) 539-4910 or e-mail [email protected].
This article originally appeared in the December 2017 print edition of National Mortgage Professional Magazine.